Question 1

If cyclical unemployment is negative, then

Accepted Answer

A)  the actual unemployment rate is below the natural rate of unemployment. 
B)  the natural rate of unemployment is getting smaller. 
C)  there have been some errors in classifying the type of unemployment experienced by some people. 
D)  structural unemployment must be increasing. 
A)  the actual unemployment rate is below the natural rate of unemployment. 
B)  the natural rate of unemployment is getting smaller. 
C)  there have been some errors in classifying the type of unemployment experienced by some people. 
D)  structural unemployment must be increasing.

Question 2

Suppose the Fed permanently increases the money supply by a given amount. Which of the following is (are) most likely to occur in the long run as a result of this monetary policy action?

Accepted Answer

A)  an increase in employment 
B)  a reduction in the real interest rate 
C)  a decrease in unemployment 
D)  all of the above 
E)  none of the above 
A)  an increase in employment 
B)  a reduction in the real interest rate 
C)  a decrease in unemployment 
D)  all of the above 
E)  none of the above

Question 3

According to the theory based on rational expectations and flexible wages and prices,

Accepted Answer

A)  fiscal policy has less effect on real GDP than monetary policy in the long run. 
B)  monetary policy has less effect on real GDP than fiscal policy in the long run. 
C)  neither fiscal nor monetary policy influence real GDP in the long run. 
D)  only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run. 
A)  fiscal policy has less effect on real GDP than monetary policy in the long run. 
B)  monetary policy has less effect on real GDP than fiscal policy in the long run. 
C)  neither fiscal nor monetary policy influence real GDP in the long run. 
D)  only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run.

Question 4

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to   . In the long run,

Accepted Answer

A)  the unemployment rate will be the same rate as before the expansionary monetary policy. 
B)  the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C)  the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D)  the unemployment rate can increase or decrease depending upon how much the LRAS will shift. 
A)  the unemployment rate will be the same rate as before the expansionary monetary policy. 
B)  the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C)  the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D)  the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Question 5

The Phillips curve shows the relationship between

Accepted Answer

A)  the rate of growth in real GDP and the unemployment rate. 
B)  the inflation rate and the unemployment rate. 
C)  aggregate demand and the unemployment rate. 
D)  aggregate supply and the unemployment rate. 
A)  the rate of growth in real GDP and the unemployment rate. 
B)  the inflation rate and the unemployment rate. 
C)  aggregate demand and the unemployment rate. 
D)  aggregate supply and the unemployment rate.

Question 6

According to the new Keynesian theory, the widespread importance of small menu costs results in variations in aggregate demand causing both

Accepted Answer

A)  greater short-run adjustments in real GDP and delayed adjustment in the price level. 
B)  greater short-run adjustments in the real GDP and immediate adjustment in the price level. 
C)  smaller short-run adjustments in real GDP and delayed adjustment in the price level. 
D)  smaller short-run adjustments in real GDP and immediate adjustment in the price level. 
A)  greater short-run adjustments in real GDP and delayed adjustment in the price level. 
B)  greater short-run adjustments in the real GDP and immediate adjustment in the price level. 
C)  smaller short-run adjustments in real GDP and delayed adjustment in the price level. 
D)  smaller short-run adjustments in real GDP and immediate adjustment in the price level.

Question 7

The rational expectations hypothesis indicates that a monetary policy designed to alter real Gross Domestic Product (GDP) will fail unless

Accepted Answer

A)  changes in the money supply are unexpected. 
B)  the government's budget is not in deficit. 
C)  labor unions have long-term contracts. 
D)  changes in the money supply are completely anticipated. 
A)  changes in the money supply are unexpected. 
B)  the government's budget is not in deficit. 
C)  labor unions have long-term contracts. 
D)  changes in the money supply are completely anticipated.

Question 8

One result of an unanticipated reduction in aggregate demand would be that

Accepted Answer

A)  fewer firms would be hiring. 
B)  more firms would be hiring. 
C)  there would be no change in hiring. 
D)  the price level would rise. 
A)  fewer firms would be hiring. 
B)  more firms would be hiring. 
C)  there would be no change in hiring. 
D)  the price level would rise.

Question 9

An important source of structural unemployment is

Accepted Answer

A)  seasonal variations in aggregate demand. 
B)  unemployment insurance benefits. 
C)  people looking for the right job decide to change jobs. 
D)  recessions. 
A)  seasonal variations in aggregate demand. 
B)  unemployment insurance benefits. 
C)  people looking for the right job decide to change jobs. 
D)  recessions.

Question 10

The proposition that policy actions have no real effects in the short run if the policy actions are anticipated is known as

Accepted Answer

A)  the unemployment stabilization proposition. 
B)  the policy irrelevance proposition. 
C)  the inflation stabilization proposition. 
D)  the Keynesian proposition. 
A)  the unemployment stabilization proposition. 
B)  the policy irrelevance proposition. 
C)  the inflation stabilization proposition. 
D)  the Keynesian proposition.

Question 11

Economists who favor policy activism argue that the United States economy is NOT always in equilibrium because

Accepted Answer

A)  the national debt is too large. 
B)  the Federal Reserve's monetary policy is too restrictive. 
C)  the markets are over regulated. 
D)  wage and price rigidities exist. 
A)  the national debt is too large. 
B)  the Federal Reserve's monetary policy is too restrictive. 
C)  the markets are over regulated. 
D)  wage and price rigidities exist.

Question 12

Deviations of the actual unemployment rate away from the natural rate are

Accepted Answer

A)  cyclical unemployment. 
B)  frictional unemployment. 
C)  structural unemployment. 
D)  the monetary rule. 
A)  cyclical unemployment. 
B)  frictional unemployment. 
C)  structural unemployment. 
D)  the monetary rule.

Question 13

The Fed initiates a contractionary monetary policy that is correctly anticipated by economic agents in the economy. The result is

Accepted Answer

A)  decreased prices, but no change in real GDP. 
B)  decreased prices and decreased real GDP in the short run, but only decreased prices in the long run. 
C)  decreased real GDP in the short run and decreased prices in the long run. 
D)  decreased real GDP and prices in both the short run and the long run. 
A)  decreased prices, but no change in real GDP. 
B)  decreased prices and decreased real GDP in the short run, but only decreased prices in the long run. 
C)  decreased real GDP in the short run and decreased prices in the long run. 
D)  decreased real GDP and prices in both the short run and the long run.

Question 14

Most economists agree with which of the following?

Accepted Answer

A)  Active policymaking is likely to exert sizable long-run effects on real GDP. 
B)  Active policymaking is unlikely to exert sizable long-run effects on real GDP. 
C)  Passive policymaking is likely to exert sizable long-run effects on real GDP. 
D)  none of the above 
A)  Active policymaking is likely to exert sizable long-run effects on real GDP. 
B)  Active policymaking is unlikely to exert sizable long-run effects on real GDP. 
C)  Passive policymaking is likely to exert sizable long-run effects on real GDP. 
D)  none of the above

Question 15

Suppose there is an oil supply shock to the U.S. economy due to an embargo by major oil producing nations. According to the real business cycle theory, the supply shock will, other things being equal,

Accepted Answer

A)  push real Gross Domestic Product (GDP) upward in the short run but downward in the long run. 
B)  push the economy into an expansionary phase of the business cycle. 
C)  cause real Gross Domestic Product (GDP) to decline both in the short run and in the long run. 
D)  cause economy-wide deflation. 
A)  push real Gross Domestic Product (GDP) upward in the short run but downward in the long run. 
B)  push the economy into an expansionary phase of the business cycle. 
C)  cause real Gross Domestic Product (GDP) to decline both in the short run and in the long run. 
D)  cause economy-wide deflation.

Question 16

The trade-off between unemployment and inflation is known as

Accepted Answer

A)  the Keynesian mechanism. 
B)  the Phillips curve. 
C)  an expansionary gap. 
D)  passive policy making. 
A)  the Keynesian mechanism. 
B)  the Phillips curve. 
C)  an expansionary gap. 
D)  passive policy making.

Question 17

Under the assumption of rational expectations, expectations people have formed are an important determinant of

Accepted Answer

A)  the short-run aggregate supply curve. 
B)  the long-run aggregate supply curve. 
C)  the short-run aggregate demand curve. 
D)  the long-run aggregate demand curve. 
A)  the short-run aggregate supply curve. 
B)  the long-run aggregate supply curve. 
C)  the short-run aggregate demand curve. 
D)  the long-run aggregate demand curve.

Question 18

The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand would

Accepted Answer

A)  immediately reduce the price level, followed by a more sluggish decline in real GDP. 
B)  immediately raise the price level, followed by a more sluggish decline in real GDP. 
C)  immediately reduce real GDP, followed by a more sluggish decline in the price level. 
D)  immediately raise real GDP, followed by a more sluggish increase in the price level. 
A)  immediately reduce the price level, followed by a more sluggish decline in real GDP. 
B)  immediately raise the price level, followed by a more sluggish decline in real GDP. 
C)  immediately reduce real GDP, followed by a more sluggish decline in the price level. 
D)  immediately raise real GDP, followed by a more sluggish increase in the price level.

Question 19

The new Keynesian sticky-price theory indicates that an increase in aggregate demand generates

Accepted Answer

A)  a speedy rise in real GDP but a sluggish increase in the price level. 
B)  a speedy rise in the price level but a sluggish increase in real GDP. 
C)  sluggish increases in both real GDP and the price level. 
D)  rapid increases in both real GDP and the price level. 
A)  a speedy rise in real GDP but a sluggish increase in the price level. 
B)  a speedy rise in the price level but a sluggish increase in real GDP. 
C)  sluggish increases in both real GDP and the price level. 
D)  rapid increases in both real GDP and the price level.

Question 20

The downward slope of the Phillips curve suggests that

Accepted Answer

A)  an increase in the price level will depress nominal wages. 
B)  an increase in the price level will increase the money supply. 
C)  a decrease in the money supply will stimulate aggregate demand. 
D)  policy makers face a trade-off between inflation and unemployment. 
A)  an increase in the price level will depress nominal wages. 
B)  an increase in the price level will increase the money supply. 
C)  a decrease in the money supply will stimulate aggregate demand. 
D)  policy makers face a trade-off between inflation and unemployment.

Exam 17: Stabilization in an Integrated World Economy

If cyclical unemployment is negative, then

Suppose the Fed permanently increases the money supply by a given amount. Which of the following is (are) most likely to occur in the long run as a result of this monetary policy action?

According to the theory based on rational expectations and flexible wages and prices,

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to . In the long run,

The Phillips curve shows the relationship between

According to the new Keynesian theory, the widespread importance of small menu costs results in variations in aggregate demand causing both

The rational expectations hypothesis indicates that a monetary policy designed to alter real Gross Domestic Product (GDP) will fail unless

One result of an unanticipated reduction in aggregate demand would be that

An important source of structural unemployment is

The proposition that policy actions have no real effects in the short run if the policy actions are anticipated is known as

Economists who favor policy activism argue that the United States economy is NOT always in equilibrium because

Deviations of the actual unemployment rate away from the natural rate are

The Fed initiates a contractionary monetary policy that is correctly anticipated by economic agents in the economy. The result is

Most economists agree with which of the following?

Suppose there is an oil supply shock to the U.S. economy due to an embargo by major oil producing nations. According to the real business cycle theory, the supply shock will, other things being equal,

The trade-off between unemployment and inflation is known as

Under the assumption of rational expectations, expectations people have formed are an important determinant of

The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand would

The new Keynesian sticky-price theory indicates that an increase in aggregate demand generates

The downward slope of the Phillips curve suggests that

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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